Can You Spend Money Before Filing Chapter 7 Bankruptcy?

You can spend money before filing Chapter 7 bankruptcy. You need to keep paying rent, utilities, and other bills. You still need to buy groceries and necessities.

The key is avoiding expensive or luxury purchases. These raise red flags with the bankruptcy trustee. Rules also restrict paying back friends or family before filing. You also can't pay more than $600 to any single creditor in the months before you file.

Why Your Cash on Hand Matters in Chapter 7

Your bankruptcy petition requires a complete financial picture. You must list all income, money, and assets you own.

Assets include checking accounts, savings accounts, retirement accounts, real estate, and cash. If you own assets not protected by an exemption, the trustee can sell them.

The funds go to pay your creditors. This happens in less than 10% of personal bankruptcies.

In exchange for this oversight, you gain significant benefits. The biggest is the bankruptcy discharge. It wipes out eligible debts completely.

Dischargeable debts include credit cards, medical bills, and some federal student loans. Filing also triggers the automatic stay. It stops debt collectors from contacting you.

The stay halts wage garnishment and repossession attempts.

Do You Keep Your Tax Refund in Chapter 7?

You generally keep your tax refund if it's protected by a bankruptcy exemption. Some states protect specific tax credits like the Earned Income Tax Credit or the Child and Dependent Care Tax Credit.

You can also use a wildcard exemption if your state allows it. Filing your tax return after filing bankruptcy isn't enough protection.

You must verify exemption coverage beforehand.

How Much Cash Can You Keep in Chapter 7?

The amount of cash you keep depends on your bankruptcy exemptions. You choose either federal or state exemptions. You cannot mix and match.

Most people using federal exemptions find coverage under the $15,800 wildcard exemption. State exemptions vary widely. Check which exemption protects cash in your state.

Important: Some exemptions protect bank accounts but not physical cash.

What Happens If You Have Too Much Money?

If you have more money than exemptions protect, the trustee will take it. The excess goes to pay your unsecured creditors.

It doesn't matter if you designated the money for a specific bill. If it's not exempt, the trustee can claim it.

You are allowed to spend money before filing your case. Bankruptcy laws and exemptions exist to protect you. Your goal is setting yourself up for the best fresh start.

Spending Money Wisely Before You File

If you have cash that exceeds your exemption limits, spend it on legitimate needs before filing. Pay current month bills. Buy necessary clothes for work or school. Get needed car repairs. Stock up on groceries.

What you should not do: purchase luxury items, transfer money to relatives, or pay off debts selectively. These actions can trigger fraud investigations. The trustee reviews your bank statements for the 90 days before filing. Large withdrawals or unusual spending patterns will require explanation.

Ordinary living expenses are always acceptable. Medical bills, childcare, housing costs, transportation—these are expected and appropriate uses of cash before bankruptcy.

Ready to File Chapter 7?

If you're considering Chapter 7 bankruptcy, Talk About Debt's free filing tool guides you through the process step-by-step. Answer guided questions, and our AI assistant Zero helps fill your forms correctly. An attorney should review your petition before filing.

This article is for educational purposes only and does not constitute financial or legal advice. Bankruptcy law varies by state, and individual circumstances differ. Consult a licensed bankruptcy attorney for guidance on your specific situation.